In a recently issued decision, a Texas intermediate appellate court affirmed the decision of the trial court granting summary judgment to a manufacturer in its sales tax refund appeal, finding that the property and services at issue in the case were exempt from Texas sales and use tax. Hancock v. ChampionX, LLC, 2026 WL 392041 (Tex. App. – Austin [15th Dist.] Feb. 12, 2026). While the facts at issue are specific to the manufacturer, the case is a good example of how principled taxpayers can be successful in protecting their rights when they refuse to back down to cramped interpretations of tax exemption statutes by state taxing authorities and are able and willing to establish in court the facts necessary to support their position.

ChampionX is a manufacturer of chemicals, including hazardous chemicals, for sale to customers in various industries. ChampionX designed the containers that it used to hold the chemicals it manufactured and purchased the containers from third parties. The containers ensured that the chemicals did not react while being transported, preserved the chemical composition of the product, and met government regulations and standards. When ChampionX’s customer is finished with the containers, ChampionX arranges for the containers to be picked up by a third-party and delivered to a third-party cleaning service, where they are cleaned and then returned to ChampionX and placed back in the manufacturing process. 

ChampionX claimed a refund for the sales and use tax that it paid on its purchases of the containers and the third-party cleaning services, asserting that the containers qualified for a manufacturing exemption and that the cleaning services qualified as an exempt service performed on exempt tangible property. The Comptroller denied the refund claim and, at the trial court, ChampionX’s successful motion for summary judgment entered into the record factual evidence in support of its claim, including: (1) an affidavit from ChampionX’s director of process technology; (2) affidavits from managers of packaging systems and delivery fleet safety at a third-party delivery service provider; (3) photographs of sample containers; (4) recertification guidelines for reusable containers; (5) brochures describing the containers; and (6) copies of permits from the U.S. Department of Transportation.

The Comptroller asserted on appeal that, notwithstanding whether the containers qualified for the manufacturing exemption, the containers did not qualify for Texas’ specific exemption for containers, and that the specific exemption for containers controls over the more general manufacturing exemption. The Court of Appeals disagreed, finding that the container exemption and manufacturing exemption were not irreconcilable. The Court first observed that there is nothing in the Texas Tax Code that suggests that property that does not qualify for a container exemption cannot be considered for a manufacturing exemption. The Court further explained that while both exemptions have the purpose of avoiding double taxation, the manufacturing exemption also has the added purpose of encouraging economic development. The Court reasoned that the two provisions can be reconciled because the manufacturing exemption “explicitly governs property used in manufacturing” while the container exemption “does not mention manufacturing, and so could apply more broadly to non-manufacturing scenarios.”   

Finally, the Court rejected the Comptroller’s argument that ChampionX’s containers did not satisfy the requirements for the manufacturing exemption, concluding that the Comptroller had waived this argument by addressing the specific provisions under which ChampionX was claiming the exemption for the first time in its reply brief on appeal. The Court also rejected the Comptroller’s argument that the cleaning services for the containers were not exempt because the containers lose their exempt status during the time period from when they are picked up from the customer until they are returned to the manufacturing process. The Court explained “[n]othing in the Manufacturing Exemption indicates that property used in manufacturing loses and regains its tax exempt status depending on whether it is being used or consumed in manufacturing at a particular moment.”